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The Power of Analogs: Learning From Prior Disruptive Dynamics

By September 5, 2023February 7th, 2024No Comments

For most companies, sustainability is neither core to revenue nor a core competency. It is an unfamiliar disruptive force when businesses are already challenged to deliver sustained growth in uncertain economic times.

But organizations will need to find ways to translate this unfamiliar force into an operational reality. There is simply too much financial and reputational risk otherwise as regulations come into effect that create public disclosure and comparability, and customer sentiment – from downstream customers and consumers – translates to buying decisions.

Although sustainability will have distinctive characteristics, it is not unique. As an example, two prior disruptive forces –  global supply chain disruption and digital transformation – create valuable lessons that can help you more easily navigate these unfamiliar waters.

1. There is a short distance between global disruption and local impact: Supply chain disruptions taught us that there is a short distance between geopolitics, severe weather events, economic dynamics, and day-to-day business. Deglobalization complicated supply-demand balances. Covid impacted supply. The war in Ukraine remade trade routes and partners, changing how global supply chains work, and causing acute energy crises that had a knock-on effect on other markets. Drought affected crop yields and caused transport issues which slowed the flow of goods: both driving up inflation. An increasing level of resource nationalism emerged that will likely play out in voluntary carbon markets.

These forces can seem distant at onset, but the complex entanglements of our global economy can create a straight line between global events and your business. Sustainability programs will need to have a persistent ability to understand and anticipate the possible risks driven from a diverse set of external forces.

2. Companies often wait too long and take on avoidable risk: Disruptions are typically unwanted and alien, and can disturb strategic direction, core operations, and the allocation of resources. Digital and mobile has transformed our economy. While the full nature of the disruptive impact was likely unknowable, the need for industries like publishing to adapt was not. Not wanted; but knowable. There were any number of signals from the market such as consumer behaviors, the rapid growth of over-the-top (OTT) services, emergence of content aggregators, and changing ad mixes. Signals from within showed that their current business model was at risk (and ultimately dire risk). We can look back at the inevitability of digital disruption, but in the fog of that moment that came with it, decisions were made to hang on to what was normal.

Sustainability will likely follow the same curve. Risks in the 2023-2025 timeframe are likely muted; but risks escalate in the 2025-2030 timeframe as regulations drive public disclosure and comparability, your downstream customer is looking to you for Scope 3 emissions reductions, and consumer sentiment increasingly translates to buying decisions.

At the same time CFOs are cautious about funding and likely skeptical of the ability to deliver both sustainability and financial performance through common initiatives. Recent studies suggest that more than 33% of surveyed CFOs were already pulling back sustainability funding to address immediate financial performance priorities, suggesting that companies may be creating a similar risk reality.

But the learnings remain that deferred actions did not lessen the need to act, and instead caused unnecessary and, in some cases, untenable risk.

Sustainability was always going to be unfamiliar and hard – but there are useful lessons from prior disruptions that can guide early decisions and set your program up for success.

We would love to get your thoughts on this and see how we can help you minimize risk on the critical path to sustainability.